SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-9747
EXCALIBUR TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 85-0278207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1921 Gallows Road, Suite 200, Vienna, Virginia 22182
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 761-3700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes |X| No [_]
As of September 10, 1999, 14,361,498 shares of the registrant's Common Stock,
par value $.01 per share, were outstanding.
EXCALIBUR TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 1999
TABLE OF CONTENTS
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements: Page
- ------- --------------------- ----
Consolidated Balance Sheets
July 31, 1999 (unaudited) and January 31, 1999......................................3
Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited) Three and six month periods ended July 31, 1999 and 1998................4
Consolidated Statements of Cash Flows (unaudited)
Six month periods ended July 31, 1999 and 1998......................................5
Notes to Consolidated Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................10
PART II. OTHER INFORMATION
Items 1. - 6. ...................................................................................19
Signatures ...................................................................................20
2
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
ASSETS July 31, 1999 January 31, 1999
(unaudited)
------------- ----------------
Current Assets:
Cash and cash equivalents ........................................................ $ 7,703 $ 5,851
Short term investments ........................................................... 178 --
Accounts receivable, net of allowance for doubtful
accounts of $594 and $660, respectively ...................................... 9,062 6,402
Prepaid expenses and other ....................................................... 2,667 2,291
-------- --------
Total current assets ....................................................... 19,610 14,544
Equipment and leasehold improvements, net of accumulated depreciation
of $7,684 and $6,986, respectively ............................................... 1,875 2,034
Other assets .......................................................................... 2,065 3,134
-------- --------
Total assets ............................................................... $ 23,550 $ 19,712
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Current portion of capital lease obligations ..................................... $ 16 $ --
Accounts payable ................................................................. 2,252 1,933
Accrued expenses ................................................................. 1,278 1,829
Deferred revenues ................................................................ 2,918 2,690
Deferred compensation ............................................................ 80 86
-------- --------
Total current liabilities .................................................. 6,544 6,538
Capital lease obligations, net of current portion ................................ 15 --
-------- --------
Total liabilities .......................................................... 6,559 6,538
-------- --------
Shareholders' Equity:
5% Cumulative convertible preferred stock,
$0.01 par value, preference in liquidation
$10 per share, 1,000 shares authorized;
27 shares issued and outstanding ............................................. 271 271
Common stock, $0.01 par value, 40,000
Shares authorized; 14,352 and 13,689
Shares issued and outstanding, respectively .................................. 144 137
Additional paid-in capital ....................................................... 74,463 68,631
Accumulated deficit .............................................................. (57,891) (55,798)
Other comprehensive income (loss) ................................................ 4 (67)
-------- --------
Total shareholders' equity ................................................. 16,991 13,174
-------- --------
Total liabilities and shareholders' equity ................................. $ 23,550 $ 19,712
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended
July 31, July 31,
1999 1998 1999 1998
-------- -------- -------- --------
REVENUES:
Software ............................................... $ 7,883 $ 4,834 $ 14,411 $ 8,565
Maintenance ............................................ 1,187 1,322 2,419 2,646
-------- -------- -------- --------
9,070 6,156 16,830 11,211
-------- -------- -------- --------
EXPENSES:
Cost of software revenues .............................. 1,258 839 2,281 1,520
Cost of maintenance revenues ........................... 533 338 1,077 652
Sales and marketing .................................... 3,749 3,430 7,643 6,658
Research and product development ....................... 2,372 1,782 4,862 3,680
General and administrative ............................. 1,434 1,019 2,712 2,242
-------- -------- -------- --------
9,346 7,408 18,575 14,752
-------- -------- -------- --------
Operating loss ............................................. (276) (1,252) (1,745) (3,541)
OTHER INCOME/ (EXPENSES):
Interest income, net .................................. 66 81 124 143
Equity in net loss of affiliate ....................... -- (101) (41) (218)
Write-off of investment in affiliate .................. -- -- (430) --
-------- -------- -------- --------
Net loss ................................................... (210) (1,272) (2,092) (3,616)
Dividends on preferred stock ............................... 3 3 7 7
-------- -------- -------- --------
Net loss applicable to common stock ........................ $ (213) $ (1,275) $ (2,099) $ (3,623)
======== ======== ======== ========
Basic and Diluted net loss per common share ................ $ (0.01) $ (0.09) $ (0.15) $ (0.27)
Weighted-average number of common shares
outstanding ................................................ 14,347 13,546 14,141 13,385
Other comprehensive income (loss):
Net loss ................................................... $ (210) $ (1,272) $ (2,092) $ (3,616)
Foreign currency translation adjustment ................ 8 40 71 --
-------- -------- -------- --------
Comprehensive loss ......................................... $ (202) $ (1,232) $ (2,021) $ (3,616)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
EXCALIBUR TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the Six Months Ended July 31,
1999 1998
---------------------------------
Cash Flows from Operating Activities:
Net loss ............................................................................ $(2,092) $(3,616)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ................................................. 789 731
Bad debt expense .............................................................. 190 126
Equity in net loss of affiliate ............................................... 41 218
Write-off of investment in affiliate .......................................... 430 --
Changes in operating assets and liabilities:
Accounts receivable ........................................................... (2,877) 1,490
Prepaid expenses and other .................................................... 158 (581)
Accounts payable and accrued expenses ......................................... (219) (306)
Deferred revenues ............................................................. 242 (64)
------- -------
Net cash used in operating activities ............................................... (3,338) (2,002)
------- -------
Cash Flows from Investing Activities:
Purchase of investments ............................................................. (178) (984)
Proceeds from maturities of investments ............................................. -- 1,493
Other assets ........................................................................ -- (96)
Purchases of equipment and leasehold improvements ................................... (525) (579)
------- -------
Net cash used in investing activities ............................................... (703) (166)
------- -------
Cash Flows from Financing Activities:
Proceeds from the exercise of stock options ......................................... 1,079 414
Gross proceeds from the issuance of common stock .................................... 5,094 3,300
Offering costs in connection with issuance of common stock .......................... (341) --
Repayment of capital lease obligations .............................................. (15) --
------- -------
Net cash provided by financing activities ........................................... 5,817 3,714
------- -------
The Effect of Exchange Rate Changes on Cash .............................................. 76 (9)
------- -------
Net Increase in Cash and Cash Equivalents ................................................ 1,852 1,537
Cash and Cash Equivalents, beginning of period ........................................... 5,851 4,939
------- -------
Cash and Cash Equivalents, end of period ................................................. $ 7,703 $ 6,476
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
EXCALIBUR TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1999
(1) THE COMPANY
The consolidated financial statements include the accounts of Excalibur
Technologies Corporation ("Excalibur") and its wholly owned subsidiaries. These
entities are collectively referred to hereinafter as the "Company." All
significant intercompany transactions and accounts have been eliminated.
The Company designs, develops and markets enterprise-wide accurate, scalable and
secure knowledge retrieval and digital asset management software solutions
capable of supporting paper, text, image and video data. The Company offers
consulting, training, product maintenance and system implementation services in
support of its software products. The Company licenses its software products
directly to commercial businesses and government agencies throughout North
America, Europe and other parts of the world and also distributes its software
products to end users through license agreements with value-added resellers,
system integrators, original equipment manufacturers and other strategic
partners.
The Company incurred a net loss of $0.2 million in the three month period ended
July 31, 1999 and has incurred cumulative losses of approximately $19.4 million
over the last three fiscal years. The accumulated deficit at July 31, 1999 was
$57.9 million. The Company's operations are subject to certain risks and
uncertainties including, among others, the dependence upon the timing of the
closing on sales of large software licenses; actual and potential competition by
entities with greater financial resources, experience and market presence than
the Company; rapid technological changes; the success of the Company's product
development, product marketing and product distribution strategies; the risks
associated with acquisitions and international expansion; the need to manage
growth; the need to retain key personnel and protect intellectual property; and
the availability of additional capital financing on terms acceptable to the
Company.
(2) SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These consolidated financial statements are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission regarding interim financial reporting. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements, and it is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements, and the notes thereto, included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1999.
In the opinion of management, the consolidated financial statements for the
fiscal periods presented herein include all adjustments that are normal and
recurring which are necessary for a fair statement of the results for the
interim periods. The results of operations for the three and six month periods
ended July 31, 1999 are not necessarily indicative of the results for the entire
fiscal year ending January 31, 2000.
Revenue Recognition
The American Institute of Certified Public Accountants has issued Statement of
Position 97-2, "Software Revenue Recognition," ("SOP 97-2") that supersedes
Statement of Position 91-1. The Company has implemented SOP 97-2 in fiscal year
1999 and it has not had a material financial impact on the Company.
6
Revenues from the sale of computer software licenses are recognized upon
shipment of product provided that the fee is fixed and determinable, persuasive
evidence of an agreement exists and collection of the resulting receivable is
considered probable. Revenues related to agreements with customers that contain
future performance requirements are recognized when the performance requirements
are satisfied. Revenues related to customer support agreements are deferred and
recognized ratably over the term of the respective agreements, which are usually
one year in length.
Customization is sometimes involved in the development of a software solution by
the Company. Under these circumstances, the Company's revenues, derived
primarily from fixed price contracts, are recognized using the
percentage-of-completion method based on the relationship of actual costs
incurred to total costs estimated to be incurred over the duration of the
contract.
Cash, Cash Equivalents and Short Term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of funds deposited in money market accounts. Consequently, the carrying
amount of cash and cash equivalents approximates fair value. The balance of
short term investments at July 31, 1999 consisted of a certificate of deposit
pledged to collateralize a letter of credit required for a leased facility.
Net Loss Per Common Share
Basic loss per common share includes no dilution and is computed by dividing net
loss available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted loss per common share includes the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock. Options to purchase
2,470,515 shares of common stock and cumulative convertible preferred stock that
were outstanding at July 31, 1999 were not included in the computation of
diluted loss per common share as their effect would be anti-dilutive. As a
result, the basic and diluted loss per common share amounts are identical.
Income Taxes
Deferred taxes are provided utilizing the liability method, whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company
has provided a full valuation allowance against its net deferred tax asset as of
July 31, 1999 and January 31, 1999, respectively.
(3) INVESTMENT IN AFFILIATE
In July 1996, the Company authorized the use of its name by Excalibur
Technologies N.V. ("ETNV"), a Belgian company incorporated in June 1996 for the
purpose of selling and marketing the Company's products and services within a
large territory including most of Northern Europe and Italy. The Company
contributed approximately $488,000 in cash to ETNV in consideration for 13.2% of
its voting capital stock. In May 1999, the Company terminated its 1996
distribution agreement with ETNV because ETNV failed to pay to Excalibur the
minimum required license fees for the quarter ended January 31, 1999 of
approximately $900,000 as well as an additional amount of approximately $400,000
that was due on April 20, 1999. Promptly after giving notice of such
termination, Excalibur commenced a lawsuit in the United States District Court
for the Eastern District of Virginia seeking as damages such unpaid minimum
license fees and other amounts due and owing from ETNV. The lawsuit was settled
during this fiscal quarter. No payment was made by ETNV as part of the
settlement.
In connection with the original organization of ETNV, the Company issued
warrants to purchase 148,500 shares of the Company's common stock to certain
shareholders of ETNV. The warrants were exercisable at a price of $22.00 per
share for a term of seven years but only if ETNV achieved certain financial
objectives. The value of the warrants on the date of grant was estimated to be
$758,000 and had been included, net of amortization, in other
7
assets in the consolidated balance sheet. As a result of the termination of the
Company's distribution agreement with ETNV, the unamortized value of the
warrants and investment costs totaling $430,000 was written off during the six
months ended July 31, 1999.
Prior to termination of the distribution agreement, the Company's investment in
ETNV was accounted for using the equity method. The original investment exceeded
the Company's share of the underlying net assets of ETNV by approximately
$827,000. The excess was being amortized over a five-year period. The
amortization of the excess, as well as the Company's share of ETNV's net loss
for the period and the elimination of the Company's share of gross profit
included in ETNV's prepaid license fees is included in equity in net loss of
affiliate in the accompanying consolidated statements of operations for the six
months ended July 31, 1999 and 1998. The net balance of the investment in and
advances to ETNV of $471,000 was included in other assets in the accompanying
consolidated balance sheet at January 31, 1999. That account had a net balance
of $430,000 when it was written off during the six months ended July 31, 1999.
No revenue related to the agreement was recorded in the first half of the
current year. For the three and six month periods ended July 31, 1998, the
Company recorded revenues of $255,000 and $585,000, respectively.
(4) CAPITALIZATION
Stock Offerings
In March 1999 the Company completed a private placement of 500,000 shares (the
"Shares") of its common stock to unaffiliated accredited investors, most of whom
are institutional investors. The Shares were sold at a purchase price of $10.00
per share, resulting in net proceeds to the Company of approximately $4.7
million. Net proceeds from the placement will be used to fund ongoing operations
and general corporate purposes of the Company. A registration statement under
the Securities Act of 1933 covering resale of the Shares was declared effective
by the Securities and Exchange Commission on July 14, 1999. The Shares were sold
pursuant to an exemption from the registration requirements of the Securities
Act of 1933.
During the first six months of the current fiscal year, the Company issued
154,000 shares of common stock upon the exercise of options resulting in total
cash proceeds of $1,079,000 and the utilization of $6,000 of deferred
compensation. Additionally the Company issued 8,300 shares of common stock to
participants of the employee stock purchase plan resulting in cash proceeds of
$94,000.
(5) SEGMENT REPORTING
The Company has two operating segments. The Text segment includes the
RetrievalWare family of text products. The market for text products consists of
electronic publishing, Internet online content providers, global corporate
intranets, paper archival systems as well as market, business and government
intelligence. The Visual Segment product line includes visual RetrievalWare,
Video Analysis Engine (VAE) and Screening Room. The market for visual products
includes application and website developers, certain government agencies as well
as commercial media, entertainment and broadcasting companies. Prior to this
fiscal quarter, the Company operated as a single segment. During this fiscal
quarter, the revenue model for the Visual Segment has become differentiated from
the Text segment. Visual segment revenues are generated primarily from large OEM
transactions involving significant development and customization by the Company.
While OEM deals are a significant component of Text segment revenues, the
majority of revenue is generated from licensing RetrievalWare directly to
Internet web portals and to corporations building intranets. Until this quarter,
the Visual Segment was not forecast to meet any of the 10% significance tests as
outlined in Financial Accounting Standards Board ("FASB") SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
8
The following charts represent revenues, expenses and operating profit (in
thousands of dollars) attributable to the Text and Visual operating segments for
the three and six month periods ended July 31, 1999 and 1998. Expenses for each
segment consist of direct and allocated expenses. Revenues are entirely from
external customers.
- ---------------------------------------------------------------------------------------------------------------------
Text Segment Visual Segment Total
------------ -------------- -----
Three months ended July 31, Three months ended July 31, Three months ended July 31,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Total Revenue $6,865 $5,966 $2,205 $ 190 $9,070 $ 6,156
Operating
Expenses 6,832 6,054 2,514 1,354 9,346 7,408
------ ------ ------- ------- ------- -------
Operating Income
(Loss) $ 33 $ (88) $ (309) $(1,164) $(276) $(1,252)
------ ------ ------- ------- ------ -------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Text Segment Visual Segment Total
------------ -------------- -----
Six months ended July 31, Six months ended July 31, Six months ended July 31,
- ---------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Total Revenue $13,715 $10,827 $ 3,115 $ 384 $16,830 $ 11,211
Operating Expenses 13,860 11,935 4,715 2,817 18,575 $ 14,752
------- ------- ------- ------- ------- --------
Operating Income
(Loss) $ (145) $(1,108) $(1,600) $(2,433) $(1,745) $ (3,541)
------- ------- ------- ------- ------- -------
- ---------------------------------------------------------------------------------------------------------------------
For the three months ended July 31, 1999, revenues from two individual customers
comprised approximately 17% and 14% of total revenues, respectively. Revenues
derived from sales to agencies of the U.S. Government were approximately 11% of
total revenues for the current quarter.
(6) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met. The
Company believes the adoption of SFAS No. 133 will not have a material effect on
the financial statements.
The American Institute of Certified Public Accountants has issued Statement of
Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the Company's fiscal year 2001. The Company has evaluated SOP
98-9 and does not believe its adoption will have a material effect on the
financial statements.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements about the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this report are based on information available to the Company on the
date hereof and the Company assumes no obligation to update any such
forward-looking statements. The forward-looking statements contained herein
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this report.
The Company principally earns revenues from the licensing of its software
products to commercial businesses and government agencies throughout North
America, Europe and other parts of the world. The Company licenses its software
to end-users directly and also distributes its software products through license
agreements with value-added resellers, system integrators, original equipment
manufacturers and other strategic partners. Revenues are provided under software
licenses with new customers and from the related sale of product maintenance,
training and implementation support services. Additions to the number of
authorized users, upgrades to newer product versions and the renewal of product
maintenance arrangements by customers pursuant to existing licenses also provide
revenues to the Company. Under software maintenance contracts, customers are
typically entitled to receive telephone support, software bug fixes and new
releases of particular software products when and if they are released.
The Company's software products are designed to enable individuals to quickly
search and retrieve relevant information residing on a LAN/WAN, intranet,
paper-based archive, extranet, video archive or the Internet through a unified
web-based user interface. There are generally two markets today for the
Company's products, text knowledge retrieval and video indexing and retrieval.
The market for text knowledge retrieval products consists of electronic
publishing, online information services, global corporate intranets, paper
archival systems as well as market, business and government intelligence. The
market for video indexing and retrieval solutions includes application and
website developers, certain government agencies as well as commercial media,
entertainment and broadcasting companies. Text knowledge retrieval products
include the RetrievalWare family of products and EFS. Visual products include
Visual RetrievalWare, VAE and Screening Room, an advanced end-to-end solution
for real-time capturing, analyzing, cataloguing, browsing, searching and
retrieving video over intranets and extranets, that began shipping in the second
quarter of fiscal year 1999.
The following chart represents revenues and expenses (in thousands of dollars)
attributable to the text and visual operating segments for the three and six
month periods ended July 31, 1999 and 1998. Expenses for each segment consist of
direct and allocated expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
Text Segment Visual Segment Text Segment Vistual Segment
Three months ended Three months ended Six months ended Six months ended
July 31, July 31, July 31, July 31,
1999 1998 1999 1998 1999 1998 1999 1998
------------------- -------------------- -------------------- ---------------------
Total Revenue $ 6,865 $ 5,966 $ 2,205 $ 190 $ 13,715 $ 10,827 $ 3,115 $ 384
Operating Expenses 6,832 6,054 2,514 1,354 13,860 11,935 4,715 2,817
------------------- -------------------- -------------------- --------------------
Operating Income (Loss) $ 33 $ (88) $ (309) $ (1,164) $ (145) $ (1,108) $ (1,600) $ (2,433)
=================== ==================== ==================== ====================
- ------------------------------------------------------------------------------------------------------------------------------------
The Company believes that in addition to other competitive advantages, it holds
a competitive advantage in that the Company's products accommodate the indexing
and retrieval of multiple data types. The Company expects that over time, as
video becomes a more common data type, these two markets will merge.
10
Results of Operations
Revenues
Total revenues increased 47% in the second quarter of the current year over the
second quarter last year. Revenues from the Company's flagship product Excalibur
RetrievalWare increased 25% in the second quarter of the current year to $5.7
million from $4.5 million in the second quarter of the prior year. RetrievalWare
revenues represented 72% of software product revenues in the second quarter of
the current year compared to 94% in the second quarter last year. Revenues from
the Visual Products Group rose to $2.2 million in the current quarter from $0.2
million in the second quarter last year. Revenues from the Visual Products Group
represented 28% of software product revenue compared to 4% in the second quarter
last year. Due to the Company's transition from the EFS product line to
RetrievalWare, there were $21,000 in sales of EFS in the second quarter of the
current year compared to sales of $116 thousand in the second quarter last year.
Total software revenues increased 63% in the second quarter this year to $7.9
million from $4.8 million in the second quarter last year. North American
software revenues grew 92% in the second quarter to $6.4 million from $3.3
million in the second quarter last year. International software revenues in the
second quarter were flat compared to the comparable period last year.
For the six months ended July 31, 1999, total revenues were $16.8 million, an
increase of 50% over total revenues of $11.2 million reported for the
corresponding period last year. Revenues from RetrievalWare for the first six
months of the fiscal year increased 42% to $11.3 million from $8 million for the
first six months of last year. Revenues from the Visual Products Group were $3.1
million for the first half of this fiscal year compared to $.4 million in the
first half of last year. Revenues from EFS were $21,000 in the first half of
this fiscal year compared to $0.2 million for the same period last year.
Total software revenues for the six months ended July 31, 1999 were $14.4
million, an increase of 68% over software revenues of $8.6 million in the
comparable period last year. Software revenues from North American sales
increased 91% from the corresponding six month period of last year.
International software revenues increased 24% in the first six months of this
fiscal year from the same period last year.
The charts below summarize the components of revenues and expenses, including
the amounts expressed as a percentage of total revenues, for the three and six
month periods ended July 31, 1999 and 1998, and the percentage change in the
amounts between fiscal periods (dollars in thousands).
- ----------------------------------------------------------------------------------------------------------------
Components of Revenue and Expenses Increase/
Three Months Ended July 31, (Decrease)
1999 1998
$ % $ % %
---------------------- ---------------------- -------
Revenues:
RetrievalWare $5,685 63% $4,543 74% 25%
EFS 21 0 116 2 (82)
Visual Products Group 2,177 24 175 3 1141
--------------------- --------------------- -------
Total Software 7,883 87 4,834 79 63
Maintenance 1,187 13 1,322 21 (10)
--------------------- --------------------- -------
Total revenues $9,070 100% $6,156 100% 47%
--------------------- --------------------- --------
Expenses:
Costs of sales $1,791 20% $1,177 19% 52%
Sales and marketing 3,749 41 3,430 56 9
Research and product development 2,372 26 1,782 29 33
General and administrative 1,434 16 1,019 16 41
--------------------- ---------------------- -------
Total expenses $9,346 103% $7,408 120% 26%
===================== ====================== =======
- ---------------------------------------------------------------------------------------------------------------
11
- ---------------------------------------------------------------------------------------------------------------
Components of Revenue and Expenses Increase/
Six Months Ended July 31, Decrease
1999 1998
$ % $ % %
----------------------- ----------------------- -------
Revenues:
RetrievalWare $11,329 68% $ 7,977 71% 42%
EFS 21 0 228 2 (91)
Visual Products Group 3,061 18 360 3 750
----------------------- ----------------------- -------
Total Software 14,411 86 8,565 76 68
Maintenance 2,419 14 2,646 24 (9)
----------------------- ----------------------- -------
Total revenues $16,830 100% $11,211 100% 50%
----------------------- ----------------------- -------
Expenses:
Costs of sales $ 3,358 20% $ 2,172 20% 55%
Sales and marketing 7,643 45 6,658 59 15
Research and product development 4,862 29 3,680 33 32
General and administrative 2,712 16 2,242 20 21
----------------------- ----------------------- -------
Total expenses $18,575 110% $14,752 132% 26%
----------------------- ----------------------- -------
- ---------------------------------------------------------------------------------------------------------------
Revenue increases continue to be driven by growth in sales from three primary
areas. These areas include organizations with major intranets and corporate
portal installations, Internet businesses and web content providers, and major
integration and distribution partnerships.
The first area of revenue growth came from sales of RetrievalWare to
organizations with large intranets seeking to implement high performance search
and retrieval software or replace existing search technology. Typically these
are maturing corporate intranet sites dealing with expanding amounts of content
and multimedia datatypes that need to be effectively accessed and utilized by
the organization. In the first half of this year, intranet or knowledge
management market sales were 40% of all license revenues.
A second area of revenue growth came from sales of Excalibur RetrievalWare and
WebExpress to Internet web portals looking to provide customers with an enhanced
search experience. Typically these are online businesses that place a high value
on their content and whose customers demand the most accurate search results
from the greatest amount of information. In the first six months of this year,
online services sales comprised 21% of total license revenues. Overall, there
are now more than 50 companies using Excalibur products to power online
information services and applications.
The third area of growth came from existing OEM partners such as Storage
Technology Corporation ("StorageTek") and major new partnerships with NCR
Corporation, a recognized world leader in data warehousing solutions for the
retail, financial, communications, airlines and insurance markets; Parametric
Technology Corporation, a leading provider of integrated product development and
lifecycle management solutions; and BankTec, one of the largest distributors of
document management systems in Europe.
The Company's partnership with StorageTek calls for the joint development of
advanced solutions called Network Appliances which are integrated software, tape
and disk storage solutions that enable fast, easy and intelligent management of
large amounts of corporate information ranging from electronic text to video.
Currently there are two new appliances that have been built upon Excalibur
RetrievalWare and Excalibur Screening Room products. The Media Management
Network Appliance utilizing Excalibur Screening Room was first shipped in April
of 1999, while the MessageVault e-mail appliance utilizing Excalibur
RetrievalWare began shipping at the end of July 1999. In the second quarter of
the current year, the Company recognized approximately $1.6 million from the
StorageTek agreement. The Company has now completed delivery of the products
under the terms of the contract and has recognized the last payment from
StorageTek for development. Revenues of approximately $5.1 million have been
12
recognized from the StorageTek agreement since its inception. The Company
expects to earn additional revenues from StorageTek after prepaid royalties are
sold through by earning royalties on the sales of the network appliances.
The licensing, development and distribution agreement with NCR, the largest in
the history of Excalibur, gives NCR rights to use Excalibur's products in NCR
Teradata warehouse solutions that NCR will announce this fall. NCR will also
resell the full Excalibur product line and offer the Company's applications
through its worldwide services and solutions group. NCR's initial multi-million
dollar investment is for licensing, integration and support which the Company
will recognize as development milestones are met. In addition, NCR will pay
Excalibur ongoing royalties for data warehouse products it develops that use
Excalibur technology. In the second quarter, the Company recognized revenues of
approximately $1.3 million from the NCR agreement which is being accounted for
on a percentage of completion basis.
According to the agreement with Parametric Technology Corporation
("Parametrics"), Parametrics will integrate RetrievalWare into Parametric's
Windchill release 3.0 which features Enterprise Product Modeling solutions for
connecting engineering workgroups to the extended enterprise. Parametrics will
sell the combined solution to customers worldwide and will pay Excalibur ongoing
royalties for each unit sold.
In addition, Excalibur signed an agreement with INTERVU Corporation, a leading
provider of Internet audio and video delivery solutions, that calls for INTERVU
to use Excalibur Screening Room to create a turnkey service for the management
of video content over the Internet. INTERVU will sell the service worldwide and
pay Excalibur a monthly fee for use of the software.
Overall, the Company's indirect sales strategy continues to focus on strategic
OEM agreements that provide significant revenue opportunity. OEM relationships
provided 39% of license revenues for the first half of the current year.
Maintenance revenues dropped 10% in the second quarter this year to $1.2 million
from $1.3 million in the second quarter last year. Maintenance revenues declined
9% compared to the first half of last year. The decrease is due to the continued
transition of the business from EFS to RetrievalWare as well as the increase in
revenues from OEM agreements that do not have significant maintenance
components. While the EFS customer base in general is not renewing their
maintenance contracts, the RetrievalWare base of maintenance contracts continues
to grow as RetrievalWare license sales grow, but the overall effect is a decline
in maintenance revenues in the current fiscal year.
Costs of Sales
Costs of sales increased 52% to $1.8 million in the second quarter of the
current year from $1.2 million in the second quarter last year. For the first
six months of the current fiscal year, costs of sales increased 55% to $3.4
million from $2.2 million in the first six months of last year. The increase is
attributable to the sales volume increase, greater royalty expense associated
with new features included in the products, and the addition of technical
support personnel for the StorageTek products. Costs of sales expressed as a
percentage of total sales were 20% for both the second quarter and first half of
the current year compared to 19% and 20% for the second quarter and first half
of last year, respectively.
Operating Expenses
Sales and marketing expenses increased 9% in the quarter ended July 31, 1999 to
$3.7 million from $3.4 million in the second quarter last year, representing 41%
and 56% of total revenues, respectively. For the first half of the current
fiscal year, sales and marketing expenses increased to $7.6 million from $6.7
million for the corresponding period last year, representing 45% and 59% of
revenues, respectively. The number of employees in the sales and marketing
departments has increased from the prior year to promote and support the
increased sales effort, including the StorageTek product line, which did not
exist in the first half of the prior year. The decrease in sales and marketing
expenses as a percentage of total revenues is attributed to the increased
revenues in the current fiscal year.
Total research and product development costs increased 33% to $2.4 million in
the second quarter of the current year compared with $1.8 million in the second
quarter last year, representing 26% and 29% of revenues, respectively. For the
six months ended July 31, 1999, total research and development costs increased
32% to $4.9 million from $3.7 million in the first six months of the prior year,
representing 29% and 33% of total revenues, respectively. The increase in
absolute dollars is largely due to the creation of the joint development lab
with StorageTek. The lab, established in the third quarter of fiscal 1999, has
integrated StorageTek products with
13
Excalibur's advanced products for crawling, indexing, searching, retrieving and
distributing all enterprise digital content, to create advanced solutions that
make enterprise-wide information assets easier to archive, access and leverage.
Based on expected demand, efforts were accelerated to complete development of
these StorageTek network appliance products. Text and Visual research and
development expenses also increased in the first half of the current year
compared to last year as the Company continued to invest in the enhancement of
its RetrievalWare and Visual product lines. In the first quarter of the current
year, the Company released Excalibur Screening Room 2.0, a web-based, end-to-end
solution for real-time capturing, analyzing, cataloguing, browsing, searching,
retrieving and publishing video, as well as related closed-caption text and
metadata, in a range of applications. The Company also recently announced the
availability of RetrievalWare version 6.7 and a new Power Search Plug-in for
Lotus Notes. RetrievalWare version 6.7's new features include automatic
categorization, enhanced XML support, and experts directories. Automatic
categorization eliminates the need to build complex topic trees. The Power
Search Plug-in for Lotus notes allows Lotus customers to power search from
inside the Notes environment across data distributed enterprisewide.
General and administrative expenses increased 41% in the second quarter to $1.4
million from $1.0 million in the second quarter last year, representing 16% and
17% of total revenues, respectively. For the first half of this year, general
and administrative expenses increased 21% to $2.7 million from $2.2 million in
the first half of last year, representing 16% and 20% of total revenues,
respectively. The increase in absolute dollars is attributable to additional
corporate expenses, including shareholder and legal expenses, as well as
additions to bad debt expense associated with the increased revenues this fiscal
year.
Net interest income declined to $66,000 and $124,000, respectively, in the three
and six months periods ended July 31, 1999 from $81,000 and $143,000,
respectively, in the comparable periods last year due to a lower rate of return
on invested funds. Prior to termination of the distribution agreement with the
Company's affiliate ETNV in May 1999, the Company's equity in the net loss of
ETNV was $41,000 for the quarter ended April 30, 1999. For the three and six
month periods ended July 31, 1998, the equity in the net loss of ETNV was
$101,000 and $218,000, respectively. The remaining balance of the investment in
ETNV of $430,000 was written off in the first quarter of the current fiscal year
as a result of the termination of the distribution agreement with ETNV.
14
Liquidity and Capital Resources
In the six months ended July 31, 1999, the Company's combined balance of cash,
cash equivalents and short term investments increased by $2.0 million to $7.9
million as summarized below (in thousands). At July 31, 1999, investments
consist of a certificate of deposit pledged to collateralize a letter of credit.
July 31, January 31,
1999 1999 Change
-------- ----------- ------
Cash and cash
equivalents $7,703 $5,851 $1,852
Short term
investments 178 -- 178
------ ------ ------
Total $7,881 $5,851 $2,030
====== ====== ======
During the six months ended July 31, 1999, cash of $3.3 million used to fund
operating activities was more than the net loss of $2.1 million primarily due to
an increase in accounts receivable of $2.9 million. Non-cash charges totaling
$1.5 million included depreciation and amortization of $0.8 million and the
write off of the balance of the investment in ETNV totaling $0.4 million. The
Company's operating activities used $2.0 million in the six months ended July
31, 1998. The net loss of $3.6 million was partially offset by depreciation and
amortization and a decrease in accounts receivable.
The high sales volume and increase in the level of accounts receivable during
the first half of the current year resulted in an increase in the number of days
sales outstanding ("DSO") at July 3l, 1999 compared to January 31, 1999.
Management believes that the allowance for doubtful accounts of $594,000 at July
31, 1999 is adequate.
The Company's investing activities used $0.7 million in the first half of the
current fiscal year. The purchase of a certificate of deposit used $0.2 million,
while purchases of equipment and leasehold improvements used $0.5 million. In
the first half of last fiscal year, the Company's investing activities used $0.2
million principally due to the purchase of marketable securities and equipment
totaling $1.6 million offset by the proceeds from the maturity of certain of the
marketable securities.
Cash provided by financing activities was $5.8 million for the six months ended
July 31, 1999. Net proceeds of $4.7 million were provided by a private placement
of 500,000 shares of common stock sold at $10.00 per share to unaffiliated
accredited investors, most of whom are institutional investors. Cash of $1.1
million was provided from the exercise of employee stock options and $0.1
million was provided from issuances of stock under the employee stock purchase
plan. For the six months ended July 31, 1998, financing activities provided $3.7
million. Net proceeds of $3.3 million were provided by a private placement of
325,000 shares of common stock at $10.00 per share and proceeds from the
exercise of stock options and issuance of stock under the employee stock
purchase plan provided $0.5 million.
The Company believes that its current cash and cash equivalents and its funds
generated from operations, if any, will be sufficient to fund the Company's
current projected cash needs for the remainder of the current fiscal year.
Historically, the Company has primarily used cash provided by sales of its
common stock to finance its operations. If the actions taken by management are
not effective in achieving profitable operating results, the Company may be
required to pursue external sources of financing in the future to support its
operations and capital requirements. There can be no assurances that external
sources of financing will be available if required, or that such financing will
be available on terms acceptable to the Company.
Factors That May Affect Future Results
The Company's business environment is characterized by intense competition,
rapid technological changes, changes in customer requirements and emerging new
market segments. Consequently, to compete effectively, the Company must make
frequent new product introductions and enhancements while protecting its
intellectual property, retain its key personnel and deploy sales and marketing
resources to take advantage of new business opportunities. Future operating
results will be affected by the ability of the Company to expand its product
distribution channels and to manage the expected growth of the Company. Future
results may also be impacted by the effectiveness of the
15
Company in executing future acquisitions and integrating the operations of
acquired companies with those of the Company. Failure to meet any of these
challenges could adversely affect future operating results.
The Company's quarterly operating results have varied substantially in the past
and are likely to vary substantially from quarter to quarter in the future due
to a variety of factors. In particular, the Company's period-to-period operating
results are significantly dependent upon the timing of the closing of large
license agreements. In this regard, the purchase of the Company's products can
require a significant capital investment from a potential customer which the
customer generally views as a discretionary cost that can be deferred or
canceled due to budgetary or other business reasons and can involve long sales
cycles of six months or more. Estimating future revenues is also difficult
because the Company ships its products soon after an order is received and, as
such does not have a significant backlog. Thus, quarterly license fee revenues
are heavily dependent upon a limited number of orders for large licenses
received and shipped within the same quarter. Moreover, the Company has
generally recorded a significant portion of its total quarterly license fee
revenues in the third month of a quarter, with a concentration of these revenues
occurring in the last half of that third month. This concentration of revenues
is influenced by customer tendencies to make significant capital expenditures at
the end of a fiscal quarter. The Company expects these revenue patterns to
continue for the foreseeable future. Despite the uncertainties in its revenue
patterns, the Company's operating expenses are based upon anticipated revenue
levels and such expenses are incurred on an approximately ratable basis
throughout a quarter. As a result, if expected revenues are deferred or
otherwise not realized in a quarter for any reason, the Company's business,
operating results and financial condition would be materially adversely
affected.
As of January 31, 1999, the Company had net operating loss carryforwards
("NOLs") of approximately $68 million. The deferred tax assets representing the
benefits of the NOLs have been offset completely by a valuation allowance due to
the Company's lack of an earnings history. The Company incurred a net loss of
$2.1 million for the six months ended July 31, 1999. The accumulated deficit of
the Company at July 31, 1999 was $57.9 million. The realization of the benefits
of the NOLs is dependent on sufficient taxable income in future fiscal years.
Lack of future earnings, or a change in the ownership of the Company, could
adversely affect the Company's ability to utilize the NOLs. Further, because
there was a change in the ownership of ConQuest in fiscal year 1996, the
Company's ability to utilize NOLs relating to ConQuest of approximately $3.2
million may be limited. Despite the NOL carryforwards, the Company may have
income tax liability in future years due to the application of the alternative
minimum tax rules of the Internal Revenue Code.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company believes that inflation has not had a material effect on the results
of its operations to date.
16
Year 2000
On July 29, 1998, the Securities and Exchange Commission issued additional
guidance on disclosures that public companies should make related to the Year
2000. The new release was effective for the Company's October 31, 1998 interim
reporting. In addition to historical information, the disclosure contains
forward-looking statements within the meaning of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Such statements are based
on management's current expectations and are subject to a number of factors,
risks and uncertainties which could cause actual results to differ materially
from those described in the forward-looking statements.
State of Readiness
The Company currently has facilities in six locations, each of which is
responsible for its own development information technology systems, herein known
as "Non-IT systems", while corporate information technology systems, herein
known as "IT systems", are managed by the Company's Management Information
Systems department ("MIS"). For the purposes of Year 2000 compliance, the
corporate MIS department is managing the task of verifying that all Company
systems are date compliant, including reviewing and analyzing all development
platforms, not directly under MIS control. This umbrella process was initiated
in order to ensure the Company would be able to continue developing its products
without disruption after January 1, 2000. To ensure that Non-IT and IT systems
are, or will be, compliant; the Company has undertaken a full survey of all
systems within the Company at all locations. This survey covers all user desktop
and laptop systems; all IT systems, servers, and operating systems; all critical
applications, including financial, accounting, corporate database, human
resources and administrative systems; and all Non-IT systems, servers, operating
systems and third party coding products. The majority of the Company's efforts
regarding Year 2000 readiness are associated with internal data processing
systems. In all material respects, products manufactured by the Company are
already Year 2000 compliant, although the individual platforms upon which
product(s) are developed are still under review and analysis. Due to the recent
upgrade of many of the Company's IT systems, the majority of these systems are
either currently prepared for Year 2000 in all material respects or are in the
process of being upgraded to standardized systems and applications which will
meet this objective. Most IT systems and applications which are deemed Year 2000
compliant by the software vendors are tested by the Company to verify these
claims. At this time, critical financial, accounting and corporate database
systems have been tested, and Non-IT systems are in the process of being tested.
These testing proportions are related to both the magnitude and perceived risk
of system non-compliance and future testing will be scheduled in accordance with
these criteria. For the remaining IT systems and the Non-IT systems, plans with
critical dates are being developed to monitor the Company's progress toward the
overall objective of Year 2000 compliance. The Company's anticipates readiness
for Year 2000 by early in the fourth quarter of fiscal year 2000.
Costs to Address Year 2000 Issues
Historical and estimated costs of remediation to this point have not been
material. The Company has resolved IT systems compliance issues through normal
replacement and upgrades of software. Non-IT systems are being addressed on a
case by case basis through the use of existing MIS resources. Most of the Non-IT
systems remedial activity to this point has involved applying low or zero cost
patches to operating systems and platforms using existing MIS resources to
achieve a date compliance level. The Company will continue to monitor Year 2000
remediation costs and will update its estimate of future remediation costs, if
any, as it completes its Non-IT systems analysis.
Key Considerations and Contingency Plans
At the current time, the Company's Year 2000 readiness plan anticipates that
both IT and Non-IT systems and applications will be Year 2000 compliant in all
material respects by early in the fourth quarter of fiscal year 2000. This
assessment is based on the Company's analysis to date and detailed findings at
its Vienna, Virginia and Columbia, Maryland locations. There can be no
assurance, however, of complete compliance based on the status to date. However,
since the Company is not dependent upon any single IT or Non-IT system for the
majority of its revenue, it is unlikely that any single system will have an
adverse effect on the Company as a whole. Contingency plans will involve the
procurement of newer platforms for Non-IT systems and the temporary use of
standardized commercial off-the-shelf replacement modules for IT applications
and business functions. While at present there are no indications that any
contingency plans will be necessary or that there will be revenue disruptions,
there can be no assurances that this will necessarily be the case.
17
EURO Conversion
On January 1, 1999, the exchange rates of eleven countries (Germany, France, the
Netherlands, Austria, Italy, Spain, Finland, Ireland, Belgium Portugal, and
Luxembourg) were fixed amongst one another and became the currencies of the
EURO. The currencies of the eleven countries will remain in circulation until
mid-2002. The EURO currency will be introduced on January 1, 2002. The Company
does not expect future balance sheets and statements of earnings and cash flows
to be materially impacted by the EURO Conversion.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company believes the adoption of SFAS No. 133
will not have a material effect on the financial statements.
The American Institute of Certified Public Accountants has issued Statement of
Position 98-9, "Modification of SOP-97-2, Software Revenue Recognition, With
Respect to Certain Transactions." SOP 98-9 is effective for revenue transactions
entered into in the Company's fiscal year 2001. The Company has evaluated SOP
98-9 and does not believe its adoption will have a material effect on the
financial statements.
Market Risk
The Company's market risk is principally confined to changes in foreign currency
exchange rates and potentially adverse effects of differing tax structures.
International sales are made mostly from ETIL, the Company's foreign sales
subsidiary, and are typically denominated in British pounds. The Company's
exposure to foreign exchange rate fluctuations arises in part from intercompany
accounts in which royalties on ETIL sales are charged to ETIL and recorded as
intercompany receivables on the books of the U.S. parent company. The Company is
also exposed to foreign exchange rate fluctuations as the financial results of
ETIL are translated into U.S. dollars in consolidation. As exchange rates vary,
those results when translated may vary from expectations and adversely impact
overall expected profitability.
18
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings
On May 3, 1999 the Company commenced a lawsuit against Excalibur Technologies
N.V. (ETNV) in the United States District Court for the Eastern District of
Virginia seeking as damages unpaid license fees and other amounts due and owing
from ETNV pursuant to a distribution agreement between the Company and ETNV of
approximately $1.4 million. On July 23, 1999, the Company reached an agreement
with ETNV resolving all of the issues raised by the litigation commenced in May
and the litigation was discontinued. No payment was made by ETNV as part of the
agreement.
Item 2. Changes in Securities None.
Item 3. Defaults upon Senior Securities None.
Item 4. Submission of Matters to Vote of Security Holders None.
Item 5. Other Information None.
Item 6. Exhibits and Reports on Form 8-K None.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXCALIBUR TECHNOLOGIES CORPORATION
September 13, 1999 By: /s/ Patrick C. Condo
----------------------------------------
Patrick C. Condo
President and Chief Executive Officer
(Principal Executive Officer)
September 13, 1999 By: /s/ James H. Buchanan
----------------------------------------
James H. Buchanan
Chief Financial Officer
(Principal Financial and Accounting Officer)
20